5. Saving and net flows of capital and goods In a closed economy, saving and inv

Question

5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis. Recall the components that make up GDP. National income (?) equals total expenditure on the economy's output of goods and services. Thus, where C-consumption, I - investment, G-government purchases, X-exports, M-imports, and NX-net exports Therefore, national Also, national saving is the income of the nation that is left after paying for saving (S) is defined as Y yields r = ??Plugging this into the original equation showing the various eomponents of GDP results in the following relationship: This is equivalent to S , since net exports must equal net capital outfow (NCO, also known as net foreign investment) uppose that a country is experiencing balanced trade. Determine the relationships between the entries in elationships using the following symbols: (preater than), (less than), or (equal to) t the following table, and enter these Outcomes of Balanced Trade Imparts Exports Net Exparts

Explanation / Answer

Y = C + I + G + NX

Also, national saving is the income of the nation that is left after paying for government purchases and consumption.

S = Y - G - C

Rearranging the previous equation and solving for Y yields Y = S + G + C .

S = I + NX

This is equivalent to S = I + NCO

Exports > imports

Net exports > 0

Y > C + I + G + NX

Saving > investment

Net capital outflow > 0

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